Question
Indicate whether you agree or disagree (or partially agree/disagree) with the statement below and explain why. When we are selling commodities with options, we use
Indicate whether you agree or disagree (or partially agree/disagree) with the statement below and explain why.
"When we are selling commodities with options, we use puts and calls and create a price range for the commodity we are selling. We establish a minimum price (floor) by buying puts and then a maximum price (ceiling) when we sell calls. The difference between the minimum and maximum prices (i.e. the width of the price range) depends on the difference between the put strike (which sets the floor) and the call strike (which sets the ceiling). Therefore, we always want to buy puts that have a very low strike and sell calls that have a very high strike."
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